Wrap Text
AFP - Alexander Forbes Preference Share Investments Limited - Unaudited
interim results for the six months ended 30 September 2008
ALEXANDER FORBES EQUITY HOLDINGS (PROPRIETARY) LIMITED
Registration number: 2006/025226/07
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008
REVIEW OF ACTIVITIES
Alexander Forbes Equity Holdings (Proprietary) Limited ("AFEH") is the
ultimate holding company of the Alexander Forbes group of companies ("the
group"). AFEH acquired the entire issued share capital of Alexander Forbes
Limited effective 26 July 2007 ("the effective date") following the
implementation of a scheme of arrangement in terms of section 311 of the
Companies Act No 61 of 1973, as amended ("the scheme of arrangement").
Although AFEH is a privately held company, its financial statements are made
publically available in conjunction with those of Alexander Forbes
Preference Share Investments Limited in terms of the undertakings given in
the prelisting statement issued by that company.
Details of the scheme of arrangement were provided in the circular to
shareholders issued by Alexander Forbes Limited on 30 May 2007 and in the
pre-listing statement issued by Alexander Forbes Preference Share
Investments Limited on 10 July 2007.
AFEH`s prior year results are presented for the seven months ended 30
September 2007, but include only two months of trading results covering the
period from the effective date of acquisition of Alexander Forbes Limited on
26 July 2007 up to the first interim reporting date of 30 September 2007.
The full segmental trading results of the acquired Alexander Forbes group
for both the six month period ended 30 September 2008 and 30 September 2007,
as well as commentary thereon, is provided in note 10 to these results in
order to provide more comprehensive information concerning the recent
trading performance of the acquired group.
The implementation of the equity and debt funding structure at the time of
acquisition of Alexander Forbes Limited has exposed the group to financial
risk in relation to increases in variable interest rates and depreciation of
the Rand against foreign currencies. These risks have substantially been
mitigated by implementing interest rate and currency hedges, which are of a
medium term duration.
As detailed in the pre-listing statement issued by Alexander Forbes
Preference Share Investments Limited on 10 July 2007, AFEH does not intend
to declare any dividends for the foreseeable future.
Changes in directorate
The board is pleased to welcome Mr Vuyani Ngalwana who was appointed to the
board as an independent non-executive director on 3 November 2008.
M S Moloko B Campbell
Chairman Group chief executive
20 November 2008
Abridged consolidated income statement
for the six months ended 30 September 2008
7 mths 13 mths
(2 mths (8 mths
6 mths trading) trading)
30 Sep 30 Sep 31 Mar
2008 2007 2008
Notes Rm Rm Rm
Income from continuing 3 2 585 858 3 450
operations
Operating expenses and other (2 591) (741) (2 950)
costs detailed below
Operating profit (6) 117 500
Analysed as follows:
Trading result from 445 140 704
continuing operations
Direct marketing entity in 9 4 15
run off
Consolidation of group cell 6 6 (41)
captive insurance arrangement
Operational profits available 460 150 678
to service net finance costs
Non-cash amortisation of (95) (31) (130)
intangible assets arising
from business combinations
Exceptional items and one-off (17) (2) (87)
costs relating to acquisition
of Alexander Forbes group
Impairment losses and other 4 (354) - 39
capital items
Operating profit as defined (6) 117 500
under IFRS
Net finance costs 5 (363) (109) (515)
Share of associates profits 1 - 3
(Loss)/profit before taxation (368) 8 (12)
Taxation (71) (10) (106)
Loss from continuing (439) (2) (118)
operations
Loss from discontinued - - (16)
operations
Attributable loss for the (439) (2) (134)
period
Attributable to:
Ordinary shareholders (463) (8) (168)
Minority interests 24 6 34
(439) (2) (134)
Headline loss per ordinary 6 (29) (3) (52)
share (cents)
Basic loss per ordinary share (123) (2) (45)
(cents)
Number of ordinary shares
Issued 377 377 377
Weighted average (from 377 377 377
effective date)
Abridged consolidated balance sheet
at 30 September 2008
30 Sep 30 Sep 31 Mar
2008 2007 2008
Notes Rm Rm Rm
ASSETS
Financial assets held under 135 495 150 616 143 501
multi-manager investment
contracts
Financial assets of cell 7 169 5 962 6 795
captive insurance facilities
Housing loans secured by 750 750 750
retirement fund assets
Property and equipment 212 197 215
Purchased and developed 222 243 229
computer software
Goodwill 7 5 359 5 697 5 697
Other intangible assets 2 178 2 347 2 430
Investments in associates 8 12 10 13
Deferred tax assets 140 137 124
Financial assets 365 306 356
Insurance related receivables 290 323 324
Trade and other receivables 1 764 1 104 1 964
Cash and cash equivalents 2 408 2 188 3 322
Total assets 156 517 169 880 165 720
EQUITY AND LIABILITIES
Shareholders` funds 3 390 3 253 3 776
Minority shareholders` 228 199 243
interests
Total equity 3 618 3 452 4 019
Financial liabilities held 135 464 150 572 143 473
under multi-manager
investment contracts
Liabilities of cell captive 7 169 5 962 6 795
insurance facilities
Securitisation funding for 750 750 750
housing loans
Borrowings 5 290 4 932 5 142
Deferred consideration for 5 11 6
acquisitions
Retirement benefit 90 84 85
obligations
Deferred tax liabilities 810 821 816
Provisions 692 771 789
Deferred income 283 303 267
Insurance related payables 1 366 1 146 2 043
Trade and other payables 980 1 076 1 535
Total liabilities 152 899 166 428 161 701
Total equity and liabilities 156 517 169 880 165 720
Total equity per above 3 618 3 452 4 019
Number of ordinary share in 377 377 377
issue (millions)
Net asset value per ordinary 960 916 1 066
share (cents)
Abridged consolidated cash flow statement
for the six months ended 30 September 2008
7 mths 13 mths
(2 mths (8 mths
6 mths trading) trading)
30 Sep 30 Sep 31 Mar
2008 2007 2008
Rm Rm Rm
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash generated from operations 486 193 727
Net finance costs requiring (235) (28) (253)
servicing
Cash payment of historical clients (52) (28) (91)
settlements and retirement benefit
provisions
Taxation paid (123) (106) (238)
Operating cash flows 76 31 145
Movement in working capital (263) 87 300
Movement in insurance balances (642) (323) 564
Net cash flows from operating (829) (205) 1 009
activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Subsidiaries and businesses (13) (8 321) (8 302)
acquired net of disposals
Net movement in financial assets (13) 48 (3)
Proceeds on disposal of property - 3 1
and equipment
Capital expenditure for the period (51) (14) (60)
Net cash outflow from investing (77) (8 284) (8 364)
activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds of share issues - 3 261 3 261
Net borrowings advanced 20 4 850 4 880
Payments to minority shareholders (26) (2) (8)
Net cash inflow from financing (6) 8 109 8 133
activities
Net cash outflow from discontinued - - (67)
operations
Net movement in cash and cash (912) (380) 711
equivalents
Cash and cash equivalents at 3 322 - -
beginning of period
Cash balances of subsidiaries and 5 2 562 2 562
businesses acquired
Foreign subsidiaries translation (7) 6 49
adjustment
CASH AND CASH EQUIVALENTS AT END 2 408 2 188 3 322
OF PERIOD
Abridged consolidated statement of changes in equity
For the six months ended 30 September 2008
Share Non- Ordinary Minority
capital Distri- Accu- share- share-
and butable mulated holders` holders` Total
premium reserves loss equity interests equity
Rm Rm Rm Rm Rm Rm
At - - - - - -
28 February
2007*
Shares 3 323 - - 3 323 - 3 323
issued on
26 July 2007
Equity raising (62) - - (62) - (62)
fees deducted
from share
premium
Minority - - - - 196 196
shareholders
interests of
the acquired
Alexander
Forbes group
Movement in - - - - (1) (1)
foreign
currency
translation
and other
reserves
(Loss)/Profit - - (8) (8) 6 (2)
for the period
Other - - - - (2) (2)
movements in
minority
interests
At 3 261 - (8) 3 253 199 3 452
30 September
2007
Cash flow - 652 - 652 - 652
hedge movement
accounted for
within equity
Movement in - 39 - 39 10 49
foreign
currency
translation
and other
reserves
(Loss)/Profit - - (168) (168) 34 (134)
for the period
At 31 March 3 261 691 (176) 3 776 243 4 019
2008
Cash flow - (17) - (17) - (17)
hedge movement
accounted for
within equity
Movement in - (59) - (59) (7) (66)
foreign
currency
translation
and other
reserves
(Loss)/Profit - - (310) (310) 24 (286)
for the period
Dividend paid - - - - (32) (32)
to minorities
At 3 261 615 (486) 3 390 228 3 618
30 September
2008
*The issued share capital of the company at 28 February 2007
was R100.
NOTES
1 Basis of preparation
These interim results have been prepared in accordance with, and
comply with, International Financial Reporting Standards
("IFRS"), including IAS 34 Interim Financial Reporting and the
South African Companies Act No 61 of 1973, as amended.
The accounting policies applied in the preparation of these
interim results are consistent with those detailed in the
financial statements issued by Alexander Forbes Equity Holdings
(Proprietary) Limited for the year ended 31 March 2008. There
have been no new standards or interpretations, which have had a
material effect on the results.
In accordance with IFRS 3 Business Combinations, the excess of
the purchase consideration over the tangible net asset value of
the acquired Alexander Forbes group is allocated between
goodwill, computer software and other intangible assets. A
comprehensive purchase price allocation exercise has been
completed and the result of this exercise has been accounted for
in these interim results including the restatement of the
30 September 2007 and 31 March 2008 comparatives.
30 Sep 30 Sep 31 Mar
2008 2007 2008
Rm Rm Rm
2. Exchange rates
The income statements and
balance sheets of
significant foreign
subsidiaries have been
translated to Rands as
follows:
Weighted average 15,1 14,3 15,1
R:GBP rate
Closing R:GBP rate 14,9 14,0 16,0
7 mths 13 mths
(2 mths (8 mths
6 mths trading) trading)
3. Income from continuing
operations
Fee and commission income 2 288 772 3 116
Operational interest 26 9 29
income
Interest and other 74 32 120
finance income from
finance operations
less: directly related (45) (14) (55)
interest expense
Net premium and 556 204 644
investment income from
insurance operations
less: net claims and (314) (149) (404)
transfers to policyholder
funds
Total income from 2 585 854 3 450
continuing operations
4. Impairment losses and
other capital items
Deferred profit on sale - - 20
of subsidiary
Reversal of previously - - 15
impaired loan note
Impairment of goodwill (353) - -
arising on acquisition of
the Alexander Forbes
group (see note 8)
Other (1) - 4
Total impairment losses (354) - 39
and other capital items
5. Net finance costs
Interest income 40 20 52
Finance costs requiring (275) (48) (305)
servicing
Net finance costs (235) (28) (253)
requiring servicing
Accrued interest not (128) (81) (262)
requiring servicing
Total net finance costs (363) (109) (515)
30 Sep 30 Sep 31 Mar
2008 2007 2008
Rm Rm Rm
6. Calculation of headline
earnings per share
Loss attributable to (463) (8) (168)
ordinary shareholders
(IAS 33 earnings)
Adjusting items
- Impairment losses and 354 - (39)
other capital gains
- Discontinued operation - - 16
on disposal (IFRS 5)
- Tax effect on above (5) (6)
adjustment
Headline attributable (109) (13) (197)
loss for the period
Weighted average number 377 377 377
of shares (from effective
date)
Headline loss (29) (3) (52)
per share (cents)
7. Goodwill
The goodwill balance
arises primarily from the
acquisition of the
Alexander Forbes group
effective 26 July 2007.
In line with the relevant
accounting policy of the
group, goodwill is
assessed annually for
impairment in March of
each year. An early
impairment review is
performed during the year
only in the event that
there is a significant
indication of impairment
in the value of a
specific cash generating
unit within the group.
This has resulted in an
impairment charge of R353
million for the period
under review driven by
the difficult trading
conditions experienced in
parts of the SA and
International Financial
Services businesses and
changes to equity
valuation assumptions
resulting from recent
equity market events. A
full impairment review
will be performed across
all cash generating units
at the year end. It
should be noted that
goodwill in respect of
cash generating units
where developments may
justify an increase in
value, would not result
in an increase in
carrying value under the
current accounting
standards.
30 Sep 30 Sep 31 Mar
2008 2007 2008
Rm Rm Rm
8. Investments in associates
Carrying value in balance 12 10 13
sheet
Directors` valuation of 18 21 21
associates
9. Capital expenditure
and commitments
Depreciation of property 49 14 59
and equipment and
amortisation of computer
software for the period
Capital expenditure for 51 14 60
the period
Operating lease
commitments
Due within one year 164 125 132
Thereafter 486 556 492
650 681 624
Capital expenditure and commitments will be funded from internal
cash resources.
10. Historical segmental trading results of the acquired Alexander
Forbes group
The segmental trading results of the acquired Alexander Forbes
group for the period ended 30 September 2008, including
comparative figures, are shown in the table below. It should be
noted that these include trading results for the period prior to
being acquired by AFEH and are presented solely to afford a
better comparison of the trading performance of the group.
Segmental results of Alexander Forbes Limited
for the six months ended 30 September 2008
Income Trading results of
from operations operations
30 Sep 30 Sep 30 Sep 30 Sep
2008 Var. 2007 2008 Var. 2007
6 mths % 6 mths 6 mths % 6 mths
Africa (Rm)
SA Risk 546 9 502 166 11 150
& Insurance
Services
SA Financial 674 5 641 113 (26) 153
Services
Investment 391 (2) 400 117 (5) 123
Solutions
Afrinet 133 23 108 26 30 20
(Africa
excluding-
South Africa)
Total Africa 1 744 6 1 651 422 (5) 446
(Rm)
International
(GBPm)
Financial 52,1 15 45,3 2,3 5 2,2
Services
Investment 3,7 (8) 4,0 (0,7) (17) (0,6)
Solutions
Total 55,8 13 49,3 1,6 1,6
International
(GBPm)
Total 841 19 705 23 5 22
International
(Rm)
Total Group 2 585 10 2 356 445 (5) 468
(Rm)
Commentary on segmental results
Alexander Forbes Limited achieved 10% growth in income from operations
totalling R2 585 million for the six months ended 30 September 2008.
Trading results of operations declined by 5% to R445 million for the period
as a result of reduced profits reported by the SA Financial Services and
International Financial Services businesses which experienced difficult
trading conditions in the period under review.
A brief commentary on the operating results of each of the main businesses
is detailed below.
SA Risk & Insurance Services
Income from operations increased by 9% to R546m for the 6 months. This was
driven by particularly strong growth in the insurance operations of the cell
captive insurer Guardrisk and a solid performance by the Alexander Forbes
Insurance (motor and household insurance) and Risk Services (corporate
broking and consulting) divisions. Good new business flows and organic
growth across most businesses contributed to top line growth. The Cre8
(underwriting agency and new product development) division`s results were
impacted by the restructuring of this division which should see the business
repositioning itself for growth going forward.
Disciplined expense control continued across all operating divisions
notwithstanding continued investment in people, both in the sales force as
well as technical skills. Inflationary pressures can be seen in the cost
base being led by salary inflation.
Trading results increased 11% to R166 million for the half year.
SA Financial Services
Income from operations increased by 5% to R674 million for the six months.
The core business of the Institutional Cluster, being retirement fund
administration and consulting, delivered a satisfactory performance,
demonstrating the renewed focus and strategic direction of the business.
Most of the other businesses within the Institutional Cluster delivered in
line with expectations except for the pension-backed lending business,
HomePlan, which was significantly impacted by higher funding rates resulting
from the global credit market conditions. Investment was made in the cost
base of the Institutional Cluster in the half year to position it
appropriately for further growth into the future.
New business gains in the Retail Cluster were excellent, despite challenging
market conditions. However since a large portion of the revenue from this
cluster is derived from assets under management, revenue declined due to the
decline and volatility in equity markets.
The Healthcare Cluster, once again, showed good performance over the half
year which was primarily from the healthcare broking and consulting
business. The Healthcare Management Solutions division continued to
experience difficulties and as a result, certain business lines have been
discontinued. There is a continued management focus in this business to
ensure the future growth of this strategic area.
Trading results decreased by 26% to R113 million for the half year.
Africa Investment Solutions
Income from operations decreased by 2% to R391 million for the period. The
decline in the equity markets over the period negatively affected results.
Closing assets under management decreased by 5% to R132 billion at 30
September 2008. This decline in assets is mainly due to the market, as
client retention has been commendable demonstrating the strength of the
group`s multi-manager business model. Including the international
operations, global assets under management totalled R145 billion at 30
September 2008. The full impact of this drop in assets and the subsequent
volatility will only be felt in future reporting periods.
Trading results decreased by 5% to R117 million for the 6 months.
Afrinet (Africa excluding South Africa)
Income from operations grew by 21% to R131 million during the period under
review. There was strong organic growth achieved, particularly in our Risk
Services businesses in Namibia, Tanzania and Mozambique. The pre-eminent
African network spanning over 12 countries is being further developed within
the group`s strategic efforts to expand into other African territories that
continued during the period under review.
International Financial Services
Income from operations increased by 15% to GBP52,1 million for the half-
year. The actuarial consulting business, Lane Clark & Peacock, reported year-
on-year revenue growth of 23%, driven by strong organic growth in the UK and
new operations in the Netherlands and Ireland. Although the UK based
employee benefits IFA (Independent Financial Advisory) business recorded
revenue growth of 5%, this was lower than expectation, largely as a result
of the significant disruption to the UK economy arising from the global
credit crisis and consequential impact on both markets and clients. These
difficult trading conditions are likely to persist for the foreseeable
future.
Trading profit for the half year of GBP2,3 million was 5% ahead of prior
year.
Lane Clark & Peacock was recognised in the Financial Times` Pension and
Investment awards for the second year running as investment consultancy of
the year while both Lane Clark & Peacock and Alexander Forbes Financial
Services were recognised in the Corporate Advisor awards 2008.
International Investment Solutions
Income from operations for the half-year decreased by 8% to GBP3,7 million,
largely due to the cancellation of a single administration contract during
the previous financial year. Assets under management of GBP1,1 billion as
at 30 September 2008 were impacted by the significant falls in investment
markets over the period.
The trading loss for the half-year of GBP0,7 million is GBP0,1 million
adverse to prior year but in line with expectation.
During the current reporting period a strategic review of our businesses was
undertaken to ensure that the group is optimally positioned for growth into
the future. Various opportunities have been identified through this
process, including strategic growth areas as well as areas of operational
improvement. The implementation of these projects is gaining momentum.
Transformation remains a key strategic business imperative in South Africa.
As a business, we are focused on building and protecting our client`s assets
and it is important that our business reflects the demographics and the
economy which we serve. We are pleased with the commitment and progress
being made in all of our businesses across the group.
Significant progress has also been made following the comprehensive review
of all our business practices to ensure the highest standards of corporate
governance. The continued work we are doing in this area will no doubt be
further enhanced by the appointment of Advocate Vuyani Ngwalana (former
Pension Funds Adjudicator) to the board of Alexander Forbes Equity Holdings.
Advocate Ngwalana will also serve on the Group Audit Committee providing
support to Dr Len Konar who chairs this committee:
Directors:
Independent directors:
D Konar, V R Ngalwana
Non-executive directors:
M S Moloko (Chairman), A J Claerhout, AC De Beer (Alternate),
T Espiard, L Hall (Alternate), N C Kolbe (Alternate), K A Mills (Alternate),
P G Nkadimeng, M C Ramaphosa, A Roux, P Schmid,
J A van Wyk
Executive directors:
B Campbell (Group chief executive),
D M Viljoen (Group finance director)
Company secretary:
J E Salvado
Investor relations:
D Kotzen
Registered office:
Alexander Forbes Place, 61 Katherine Street, Sandown
Transfer secretaries:
Computershare Investor Services (Pty) Limited.
Ground Floor, 70 Marshall Street, Johannesburg. PO Box 61051, Marshalltown,
2107
Sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited.
1 Merchant Place, corner Fredman Drive and Rivonia Road,
Sandton, 2196
Date: 24/11/2008 07:06:01 Supplied by www.sharenet.co.za
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